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Auto Retails holding up well, Electrification trend accelerates

ICICIdirect Research 12 Jun 2026 DISCLAIMER

Despite challenges like higher fuel prices and geopolitical uncertainties in West Asia, retail demand remained resilient, supported by rural markets, strong SUV demand, new launches and rising adoption of alternative-fuel vehicles.
For the month of May’26, India’s vehicle retail sales grew 9.6% YoY to 25.3 lakh units wherein Passenger vehicle sales were the standout performer, rising 23.3% YoY to 4 lakh units, while 2Ws grew 7.5%, CV grew 5.3% and tractors growing 11.2%.
The data highlights a clear improvement in underlying demand, particularly in rural India, where PV sales grew 30.4% compared with 18.8% in urban markets, indicating that the rural recovery is becoming a key growth driver for the auto sector on the back of small-car revival co-existing with rising SUV penetration trend.
Another important trend is the accelerating shift toward alternative powertrains, wherein India’s EV retail sales surged 45% YoY to a record 271,682 units in May, with electric PV and 2Ws driving growth amid rising fuel prices and expanding model choices.
EV penetration has clocked an historic all time high level of 11% with dealer inventory levels reduced to single-digit days across several passenger and two-wheeler EV models.
Electric passenger car sales jumped 81% to 26,682 units with Tata Motors remaining the market leader with a 38.8% share, followed by M&M at 23.3%, as Maruti Suzuki made a notable entry into the EV segment with ~6% market share. EV penetration in passenger car segment stands improved to 6.6% as of May 2026 vs. CY25 levels of 3.4%
Electric 2-W sales rose 63% to 170,733 units, within which TVS Motors maintained its pole position with sales volume of ~42k units followed by Bajaj Auto at ~39k units and Ather Energy at ~28k units. EV penetration in 2-W segment stands improved to 9.3% as of May 2026 vs. CY25 levels of 6.3%
The outlook remains constructive as monsoon progress, kharif sowing, rural cash flows and festive-season preparation are expected to support demand, but elevated fuel prices, persistent heatwaves, freight cost pressures linked to the West Asia situation and higher inventory levels remain key risks to monitor.
We are positive on the Auto space with top bets as Maruti Suzuki (BUY; Target: ₹16,150), M&M (BUY; Target: ₹ 4,000) and Bajaj Auto (BUY; Target: ₹ 12,150).
With Auto Index down ~8% on YTD basis amid geopolitical tensions, we see this as a structural opportunity to increase exposure given the fundamentals of low vehicle penetration, rising income levels and upcoming 8th pay commission. Underlying premiumization trend remains unabated. Sector is well poised for double digit value growth going forward.

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